Commissioner of Income Tax vs Asian Tubes Ltd.

Mukesh R. Shah, J.—Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income-tax Appellate Tribunal (hereinafter, referred to as "the Tribunal"), dated September 25, 2013, in I.T.A. No. 2158/Ahd/2011 for the assessment year 2003-04, whereby the learned Tribunal has allowed the said appeal preferred by the assessee, the Revenue has preferred the present tax appeal with the following proposed questions of law :

"2...

(A) Whether the Appellate Tribunal has substantially erred in considering the reopening as bad in law without appreciating the fact that the assessee had not disclosed the details of interest payment to relatives in the return of income and the issue was also not discussed in the assessment order. This is a clear case of allowance of excessive deduction and limitation of reopening within 4 years from the assessment year was, therefore, not applicable in this case?

(B) Whether the Appellate Tribunal has substantially erred in considering the payment of interest at 24 per cent to related parties as reasonable when the'' same is paid at 15 per cent to outside parties for the assessment year 2003-04 and the assessee had not established business exigency for payment of interest at higher rate?"

It appears that the assessee filed return of income on November 30, 2003, declaring a total income at Rs. 4,20,85,720 crores. Subsequently, the assessment under section 143(3) of the Act was completed on January 30, 2005, determining the total income at Rs. 4,21,15,023. Thereafter, the order under section 143(3) read with section 147 of the Act was passed on October 31, 2007, determining the total income at Rs. 4,35,24,535. That, thereafter, after a period of 4 years from the date of the concerned assessment year, the original assessment was sought to be reopened in exercise of the powers under section 147 read with section 148 of the Act and the reassessment proceedings were initiated, on the following grounds :

"The case was taken up for reassessment after duly recording the reasons for reopening. The reasons for reopening are reproduced hereunder:

The total income of the assessee as determined, vide order dated October 31, 2007, under section 143(3) read with section 147 of the Income-tax Act at Rs. 4,35,24,535.

Perusal of the record shows that the assessee has paid interest on loans taken from various parties. It is further seen that interest to related parties has been paid at the rate of 24 per cent as against 15 per cent, paid to unrelated parties.

It is, therefore, seen that excess interest has been paid to related parties which is liable to be disallowed under section 40(2)(b) of the Income-tax Act. From the records, it is further seen that in this manner, income has been under assessed to the tune of Rs. 43,05,343 adopting 9 per cent, as the excess interest paid to the related parties."

Thereafter, notice under section 148 of the Act was issued on March 30, 2010, and the Assessing Officer passed the reassessment order holding that the amount of Rs. 43,05,343 paid to the relative parties with interest at the rate of 24 per cent, is in excess of the interest at the rate of 15 per cent paid to the unrelated parties and, consequently, disallowed the same.

That, feeling aggrieved and dissatisfied with the reassessment order passed by the Assessing Officer, challenging the initiation of the reassessment proceedings itself as well as on the merits, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) and the learned Commissioner of Income-tax (Appeals) dismissed the appeal preferred by the assessee, by holding that the Assessing Officer was justified in initiating reassessment proceedings on the ground that there was no true and correct disclosure by the assessee with respect to the rate of interest paid to the concerned relative parties and also on the merits held that the interest paid at the rate of 24 per cent is in excess of the interest at the rate of 15 per cent paid to the unrelated parties was excessive, unreasonable, and therefore, disallowable.

Feeling aggrieved and dissatisfied with the order passed by the learned Commissioner of Income-tax (Appeals), dismissing the appeal preferred by the assessee and confirming the order of reassessment passed by the Assessing Officer, the assessee preferred a further appeal before the learned Income-tax Appellate Tribunal and the learned Income-tax Appellate Tribunal by the impugned judgment and order allowed the said appeal preferred by the assessee by holding that the Assessing Officer was not justified in initiating reassessment proceedings under section 148 of the Act inasmuch as there was true and correct disclosure by the assessee and, consequently, directed to quash and set aside the order passed by the Assessing Officer. Having so held, the learned Tribunal also quashed and set aside the disallowance made by the Assessing Officer of Rs. 43,05,343, on the ground that the same being the interest at the rate of 24 per cent was excessive and unreasonable.

Feeling aggrieved and dissatisfied by the order of the learned Tribunal, the Revenue has preferred the present Tax Appeal with the aforesaid proposed questions of law.

We have heard Ms. Bhatt, learned advocate appearing on behalf of the appellant-Revenue, and considered/perused the orders passed by the Assessing Officer, the learned Commissioner of Income-tax (Appeals) as well as that of the learned Tribunal.

At the outset, it is required to be noted that the learned Commissioner of Income-tax (Appeals) confirmed the reassessment initiated by Assessing Officer, by observing that there was no true and correct disclosure by the assessee with respect to the interest paid to the relative parties at the rate of 24 per cent per annum. However, in the impugned judgment and order, the learned Tribunal has specifically recorded the finding that the assessee did furnish the relevant information asked for by the Assessing Officer. Before the learned Tribunal, it was pointed out by the assessee at page Nos. 11 and 12, on item Nos. 3, 4, 20 and 24 of the letter, dated December 20, 2004, issued by the Assessing Officer by which all the details had been asked by him. It was also submitted by the assessee before the learned Tribunal that the reasonableness of the interest was explained in item No.-17 of the said letter. Considering the aforesaid facts and circumstances, the learned Tribunal has come to the conclusion that there was no failure on the part of the assessee to disclose all the facts truly and correctly and held that the reassessment proceedings, initiated after a period of 4 years, required to be quashed and set aside and the learned Tribunal has accordingly quashed and set aside the reassessment proceedings.

Ms. Bhatt, learned advocate appearing on behalf of the Revenue, is not in a position to demonstrate how the aforesaid findings recorded by the Tribunal is arbitrary or perverse and that the Tribunal has committed any error or illegality in holding the reassessment proceedings for the assessment year 2003-04, as illegal. We see no reason to interfere with the findings recorded by the Tribunal that the order for reassessment for the assessment year 2003-04 is illegal and beyond the scope of section 148 of the Act.

In view of the above findings, when the initiation of the reassessment proceedings itself is found to be illegal and beyond the scope of the relevant provisions of the Act, there is no question of further entering into the merits of the case and the learned Tribunal has rightly held that there is no illegality committed by the assessee in paying interest at the rate of 24 per cent to the related parties. In view of the above, in the facts and circumstances of the case, there is no substance in the present appeal and the same deserves to be dismissed and is dismissed, accordingly.